Fading Borders - 2

Original image:

If your image is a GIF, first increase the color depth by choosing:
Colors - Increase Color Depth - 16 Million Colors.

Step 1:
Select the background color. We are using a light blue in this example.
Choose: Image - Add Borders. Choose: Symmetric = 10.

Step 2:
Click on the Magic Wand
Choose: RGB Value, Tolerance = 10, Feather = 0.
Click on the border.
Then: Selections - Invert.

Step 3:
Image - Special Effects - Cutout.
Make sure that "Fill interior with color" is not ticked.
Select: Shadow color = Background Color, Opacity = 255, Blur = 15.
Offset Vertical = 0 and Horizontal = -3.
Do this procedure four times. Use the same settings, except for the "Offset", which should be set so that each one of the four borders will be cutout.

By choosing other settings in "Cutout", other fading effects can be achived.